The El Nino weather pattern is playing havoc with the Panama Canal as boats above a certain size cannot go through. This is creating a bottle neck which could lead to renewed snarls in the global supply chain.
According to reports, the Panama Canal, which is currently in what should be the rainy season:
Is experiencing the worst drought in 73 years;
Is way behind as rainfall totals for October 2023 are 41% of normal; and
The canal’s governors are having to decide whether to provide water for 50% of the population or keeping the canal operational.
What’s at Risk?
Aside from the potential for human suffering, here’s why this situation matters. First, the Panama Canal is the major shortcut for trade from the Atlantic to the Pacific Ocean.
The largest freight category that passes through the canal is dry bulk, followed by containers and chemicals. But the energy sector could be highly affected. Specifically, the LNG sector could suffer major consequences since the canal offers the lowest priced route for LNG traffic from the Americas to Asia: Japan, Korea, and China.
Watching the Shipping Sector
In a recent post, I noted that the ocean shipping sector, as a whole was faring better than expected even with the prospect of a slowing global economy.
In the article, I focused on Hawaii based Pacific Coast shipping specialist Matson Inc. (MATX), whose shares were holding up quite well in a volatile sector. The fact that MATX was holding up was even more remarkable given the action in the shares of the shipping sector’s bellwether, Denmark’s AB Moller-Maersk (AKMBY), which fell apart after a worse than expected earnings report and what could only be described as a bleak outlook.
Certainly, AMKBY’s shares resemble the bleak outlook expressed by management at the moment. But not all shipping stocks are in the same boat. Compare AMKBY to the above mentioned MATX, which is in a much more bullish consolidation pattern.
Matson’s steady performance may well be due to its regional routes not having much to do with the Panama Canal.
A great way to keep tabs on the shipping sector is via monitoring the SonicShares Global Shipping ETF (BOAT). This ETF owns shares in a host of international companies, many of which don’t trade in the U.S.
The price chart shows that the $28.50-$30 price area is of huge importance as a move above that price range could lead prices significantly higher.
I have just recommended a shipping stock which is showing excellent upward momentum to subscribers of Joe Duarte in the Money Options.com. You can have a look via a Free Trial which you can access here.
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